You Don’t Know Jack!

I was telling a friend of mine–a senior executive at a mid-size credit union–why many banks and credit unions deceive themselves when they say their competitive advantage is their superior level of service (if you want to know why, see this and this).

My friend said:

“You don’t get it. We do have superior service. It comes down to knowing our members better than any mega-bank could ever know them.”

I looked at him and said, “You, my friend, don’t know JACK! Or Jill, or Jim, or Jerry, or Jeannie, or any of your other members whose names start with the other 25 letters of the alphabet.”

I explained to him that his credit union knows just a thin layer of who its members are. Sure, when a member walks into a branch, employees know that it’s Jack Jones, that his wife’s name is Jane, and that they have two wonderful kids, Jenny and Jeffry who attend Jefferson College. I told him, however, “Your credit union doesn’t know:

How much money Jack has. You only know how much he has with you. And if he’s got any money, it’s a good bet he doesn’t have much of it, let alone all of it, with you. So you really don’t know his investment needs or risk tolerance.

What Jack’s financial goals are. Oh sure, you have a PFM app that has a goal tracking capability. But PFM users account for what, 10% of your overall member base? What’s the chance that Jack is one of those members AND uses the goal tracking feature?

How Jack makes his money. Oh sure, you might know how much he makes because you can see that direct deposit coming in every month, but you don’t know if that stream of income is safe and stable, or if Jack works in an industry that is on the decline.

How Jack spends his money. You’ve got a piddly percentage of your member base using your online bill pay platform, and it’s a good bet you didn’t issue all the credit cards he has, so you really don’t know where the money is going. And worse, you’re not even doing anything to analyze the debit card spend data you do have.”

Sensing that I had won yet another debate regarding banking, I eased off the gas pedal and said to my friend: “So you see, you don’t know Jack. And as I look around the industry, it’s the mega-banks and fintech startups–not the community banks and credit unions–that are doing something about it.”

“Yeah, but where and how are we going to get that data?” asked my friend.

“Sit down, grasshopper,” I counseled, “and I’ll tell you the secret to member data collection, but only if you promise not to share the secret with anyone.”

“Tell me, or I’ll kick your snarky @ss out of my office,” he replied.

“YOU ASK THEM.”

“Hold on a minute here, you yourself said that consumers aren’t using PFM tools like goal-setting features, let alone account aggregation that would give us that kind of information. And consumers don’t like to have all their financial eggs in one basket, nor do they trust financial institutions with all their data,” he retorted.

“Listen, pal, all I’ve heard from you credit unions over the past five years is how your Net Promoter scores are through the roof–and that the big banks’ scores are in negative territory–and how every consumer survey finds that credit unions are so trusted by their members. If your members really do trust you–and are so likely to refer you to their friends and family–then why wouldn’t they share personal financial information with you?”

“So, that’s all we have to do–ask them?” he inquired.

“No, you have to use your transaction and interaction systems to capture the right data points, and then analyze that data to make judgments and assumptions about your member base.”

“But we don’t know how to do that,” he admitted.

***

If you don’t have the right data about your members (customers), aren’t capturing the right data about your members (customers), and don’t or can’t analyze the data to figure out what the right data is and make assumptions and judgments about your members (customers), then:

How in the world can you say you know your members (customers) better than any mega-bank could? and

Your so-called competitive advantage isn’t much of a competitive advantage, is it?

***

Over the past two years (or so), I don’t think I’ve encountered a bank or credit union executive who doesn’t want to improve his or her organization’s analytics capability. I also don’t think I’ve met one who really knows how and where to start to do that. Nor do I think I’ve met one whose CFO would be comfortable with the fact that, even if they had a plan for where to start and what to do, there is no calculable–or reliably calculable–return on the investment needed.

This is what strategy is all about–understanding your advantage, or deciding on what that advantage should be–and making the investments needed to build the capabilities to leverage that advantage. Even if you can’t put an ROI number on it.

***

Back in the late ’90s, a couple of really smart consultants wrote a book called The Discipline of Market Leaders in which they asserted that market leaders excelled on one of three competitive dimensions, while maintaining reasonable levels of performance on the other two. Those dimensions were: 1) operational excellence, 2) product leadership, and 3) customer intimacy.

The reaction of many firms was predictable:

“We don’t want to compete on price and be the low-cost provider.” Which completely misinterpreted what dimension #1 was all about.

“We’re in a commodity business, so there is no opportunity to compete on product leadership.” Which completely missed the opportunity to de-commoditize a commodity business.

“We compete on customer intimacy, and knowing our customers better than our customers.” Which completely overlooked what intimacy really meant, and what investments were required to achieve and maintain that intimacy.

***

If you work at a community bank or credit union and tell me, “I don’t think we can compete on the basis of product leadership,” I don’t think I’d try to talk you into it. If you tell me that operational excellence isn’t for you, I might try to educate you on what that really means before accepting your answer.

If competing on customer intimacy is going to be your path to advantage, fine. But what does that really mean? It doesn’t mean knowing who your customers/members are when they walk in the door or log on. It means putting that intimacy to work by providing advice and guidance that other FIs can’t because they don’t know your customers/members as well as you do.

I especially love the reference to The Discipline of Market Leaders. When you look at the activities that define Operational Excellence– scale, standardization, efficiency, etc.– it’s clear that those are the priorities of the vast majority of financial institution. (http://jpnicols.com/2013/10/28/banks-can-compete-future/)

I agree that most have a lot of work to do to truly succeed at Customer Intimacy, or I guess I should say to make Jack be nimble and Jack be quick?

Great post about CU’s thinking we know our members so well. I was in Marketing for a 33,000 member CU and our CEO always talked about how in touch we were with our members and how WE knew what they wanted. What you said about the member coming in the branch was completely accurate. With so many new members utilizing online and mobile touchpoints and never coming into the branch, only data analytics will allow us to get to know them and we had no clue in that area.

The points made in the Discipline of Market Leaders is dead on. CU’s need to start doing a much better job of capturing members data and truly understanding what’s going on with them, or somebody else will.

Thanks. The irony (or maybe, paradox) here is that if you propose to spend money to collect better member data, the question will come up: What’s the ROI on that investment. And since it’s nearly impossible to prove that just collecting more/better data will necessarily produce an ROI, the proposed investments get shut down. Especially if there are technology integration issues that go along with it.

It’s the classic paradox that the economist Daniel Kahneman writes about in his book, Thinking Fast and Slow… answering the big questions is hard cognitive work, so we substitute an easier question that seems like the same thing.

“How can we really know our customers better?” becomes “How can we make it appear that we’re friends with the customers that come into the branch regularly?” That second one is much easier to both answer and execute on.

I agree with the advice of asking members, but I would add that they actually ask their members to help them. Asking for help is not something that comes easy to any of us, especially a financial organization – but it’s hard to say no to a real plea for help. It also helps humanize what is normally seen as “a business”. Asking members to make the CU better would engage the part of their brain that was probably last engaged when they first joined. The members self-identified to join the club, now you can start treating them special.

Great article. Spot on with your points regarding a “customer centric” mentality that ultimately will lead to stickiness and increased wallet share.

Our research team at nCino recently published a whitepaper with a similar tone entitled “The Big Data Era has Arrived”. Turns out it was our most downloaded paper to date. Check it out here..www.ncino.com/whitepaper

Technology integration issues might be hard (although I’ve seen numerous instances where they’re not – c’mon people, we blew men to the moon on a rocket ship almost 50 years ago, we can’t get all of your customer/member information into one place?), but they’re not insurmountable. There are FIs that understand the importance and strategic advantage of having this knowledge. They didn’t let “technology integration is hard” get in their way. If it’s important enough, you’ll find a way – plenty of people do.